Foreign Account Tax Compliance Act (FATCA) creates tax reporting and withholding burdens on financial institutions under United States law. Primarily, it is designed to combat tax evasion by U.S. citizens, and requires financial institutions around the world to conduct due diligence on customers and counterparty payees and to report information.
At its core, FATCA is about collecting documentation and reporting information on customer accounts and counterparty payees to demonstrate compliance to the U.S. tax authority, the Internal Revenue Service (IRS). Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. Under FATCA, withholding agents must withhold tax on certain payments to foreign financial institutions that do not agree to report certain information to the IRS about their U.S. accounts or accounts of certain foreign entities with substantial U.S. owners.
Financial services institutions typically store and maintain vast repositories of customer data and records on centralized databases. However, different business units and office locations within an organization and even different databases within the same office location often apply different syntax and taxonomies to the stored data. The customer data will then be formatted differently and include different types of information depending on how a particular database is structured. This presents substantial difficulties to the financial services institution in meeting its documentation and reporting obligations under FATCA that scale as the size of size and number of the customer databases increase. A strong data and process solution is required to support auditability within the data collection screening and reporting requirements.